Wireless companies are cutting cancellation fees

Major carriers offer monthly reductions or prorated charge

Consumers are getting some relief as major wireless phone carriers are reducing hefty early cancellation fees for service contracts.

For years, major wireless carriers charged up to $200 if a customer signed up for a contract but decided to drop the service before the two-year term was up.

The fees have caused complaints from people who want to cancel after their first bill is higher than expected. They are often shocked to find they would have to pay the early termination fee, even though it is in their contract.

"We've never bought into the idea that consumers should have to pay in order to shop around for cell phone service," said Bob Williams, director of HearUsNow.org, a project of Consumers Union that focuses on communications issues. "We don't think they're necessary at all," he said of the fees.

Several of the largest carriers have been reducing the termination fees, saying they want to offer customers more choices. In November 2006, Verizon Wireless reduced its $175 termination fee by $5 for each month that a customer remains with the company. AT&T matched that policy as of May 25.

As of June 28, T-Mobile began prorating its $200 fee: A customer would pay $100 for canceling six months early or $50 for canceling three months early. Canceling with one month to go would cost either $50 or the standard monthly charge, whichever is less.

Sprint said it will charge a lower fee by the end of the year. "Our competitors offered it before we did, but we're responding," said Sprint spokesman John Taylor. "If we didn't intend to prorate, the consumers would send us a message."

Consumer advocates say the cancellation fees are still too high.

Wireless carriers, however, say long-term contracts allow them to subsidize the phones they sell.

The FCC has waded into the issue, holding a public hearing last month on early termination fees, which are also being imposed for broadband and video service contracts. FCC Chairman Kevin Martin said it may be better for the federal government rather than the states to regulate such contracts.

But some consumer advocates oppose federal oversight if it results in customers losing the right to sue in state courts.

In one such case, Verizon Wireless will pay $21 million to settle a class-action lawsuit that said its previous flat-rate cancellation fee violated state and federal laws. The settlement reached July 10 in Alameda County Superior Court affects all U.S. customers billed a flat-rate fee since July 23, 1999.